"Back to DOJ Antitrust Review of Thomson/West Merger Page"
Judge Friedman raises further questions, criticizes Department of Justice, objects to provisions in new license agreement proposal, objects to divestiture to Lexis, and invites HyperLaw to file an expanded motion to intervene.
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1 UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
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UNITED STATES OF AMERICA . Docket No. CA 96-1415
3 .
Plaintiff, . Washington, D. C.
4 . February 6, 1997
vs. . 2:30 p.m.
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THOMSON CORPORATION, ET AL, .
6 .
Defendants .
7 .
. . . . . . . . . . . . . . . . . .
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TRANSCRIPT OF STATUS CONFERENCE
9 BEFORE THE HONORABLE PAUL L. FRIEDMAN
UNITED STATES DISTRICT JUDGE
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APPEARANCES:
11
For the Plaintiff: CRAIG W. CONRATH, ESQUIRE
12 JAMES FOSTER, ESQUIRE
JOHN IOANNOU, ESQUIRE
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For the Defendants: WAYNE D. COLLINS, ESQUIRE
14 JAMES E. SCHATZ, ESQUIRE
MARK SIEMANS, ESQUIRE
15
For the Amicus: GARY L. REBACK, ESQUIRE
16
Official Court Reporter: SANTA THERESA ZIZZO
17 ROOM 4800C U. S. Courthouse
Washington, D. C. 20001
18 (202) 289 1160
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Computer-Aided Transcription of Stenographic Notes
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Pages 1-61
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1 P R O C E E D I N G S
2 THE DEPUTY CLERK: Civil action 96-1415. United
3 States of America versus Thomson Corporation, et al. Mr.
4 Conrath and Mr. Foster and Mr. Ioannou for the plaintiff. Mr.
5 Collins representing Thomson. Mr. Schatz representing West
6 Publishing. And Mr. Reback is here for the amicus Lexis.
7 THE COURT: Anybody else needs to be introduced?
8 Let me first apologize to all of you for being late.
9 This was scheduled for two o'clock. I'm in a trial and I told
10 the jury that we would just sit this morning and we'd finish by
11 one but we didn't finish by one and that's why we are a little
12 late starting this afternoon.
13 I've gotten lots of pieces of paper since my opinion
14 in December. I had vowed to myself I was going to get it done
15 before Christmas so I wouldn't have it on my mind over
16 Christmas. I figured I would transfer it to your minds. And
17 I'm sure -- I hope I didn't interrupt anybody's holiday too
18 much. And then I issued a subsequent order in January and also
19 got some documentation with respect to Ohio litigation going on,
20 that had been going on and I'm sure you can bring me up to speed
21 on that as well. Because there was something in some of the
22 papers about possibly transferring it here and I have some
23 reason to believe that may have been stayed because of things
24 that happened subsequently.
25 And then there was a joint status report from West,
3
1 Thomson and Lexis. There's a motion that no one has had time to
2 respond to yet from Hyperlaw renewing its motion to intervene.
3 And then there is a very recent motion from the
4 defendants but not from the plaintiffs that has a modified or
5 amended proposed final judgment that I'm asked to enter.
6 The status conference that brings us here was really
7 at the request of the Government and obviously I want to hear
8 anything and everything that you all have to say.
9 A couple of things strike me which I guess I will just
10 mention. One is that with respect to the divestiture issue, if
11 I'm reading what was a very short and uninformative document
12 correctly, the -- every divestiture product is going to Lexis,
13 if I'm reading it properly. And presumably under the final
14 judgment and negotiated settlement of the case, that would have
15 to be approved by the Justice Department and I have no knowledge
16 as to whether it's been approved yet, and in some cases by
17 individual States.
18 Secondly, there's mention of antitrust releases
19 between Lexis, West and Thomson and I don't have any information
20 about what that means but I assume that the Justice Department
21 does. Since I have such limited information I don't know that
22 those people in the industry other than West, Thomson and Lexis
23 may want to be heard on what are dramatically changed
24 circumstances wherein it appears that all three of the most
25 major players are now in agreement on everything when before
4
1 they weren't.
2 And the question is how deeply does the Justice
3 Department look into these questions, what does the Justice
4 Department do next and what should the Court do after that?
5 And separate and apart from the divestiture and the
6 apparently dramatic changed circumstances in the marketplace, I
7 means questions like do we need another round of public
8 comment? Is that authorized by the statute? Do we need a
9 revised competitive impact statement? What exactly is the
10 Justice Department doing about it, doing about the information
11 it has which the Court does not have?
12 Then we get to the star pagination issue and what I've
13 been told in the papers submitted by West, Thomson and Lexis is
14 that the Justice Department doesn't object to what they're
15 proposing, and the first question is whether that's a sufficient
16 posture for the Justice Department. The first question is
17 whether that's an accurate description of the Justice Department
18 position.
19 The second question is whether that's an appropriate
20 posture for the Department to take. Maybe it is since it didn't
21 disagree -- since what I did in my opinion was not something
22 that emanated from the Department. But under the statute is
23 that the appropriate posture? Does the Department have to do
24 more, say more than that, and what's going to happen to that.
25 And then the specifics of the proposal I think we
5
1 ought to talk a little bit about and I'm not sure that I fully
2 understand -- obviously the bottom line for me on that is
3 whether or not it meets my concerns but I'm not sure I fully
4 understand all of the pieces of it and why they are in there.
5 So, those are sort of my preliminary reactions to what
6 I have read. And shall we start with the Department?
7 MR. FOSTER: I'm James Foster and I'm be speaking for
8 the United States today, the Department of Justice. I'd like to
9 introduce Mr. John Ioannou from the New York State Antitrust
10 Bureau representing New York State and he can also confirm the
11 positions of the other State plaintiffs. We have seven State
12 plaintiffs. They all couldn't be here today.
13 The plaintiffs called for this status conference so
14 that we could discuss with the Court the issues raised in the
15 December 23rd opinion as it relates to the star pagination
16 license fee. The other reason we're here today is because of
17 Thomson's motion to re-enter, to enter a new decree.
18 If you have any particular questions you want me to go
19 ahead with first, as to the divestitures I just heard you
20 mention I'll be glad to answer those.
21 THE COURT: You can go in whatever order you want to.
22 MR. FOSTER: The plaintiffs read the December 23rd
23 opinion and we focused on the Court's concerns about the star
24 pagination fee and although the plaintiffs believe that the
25 original relief requested was within the reaches of the public
6
1 interest, we feel that a revision along the lines the Court
2 suggests would also be in the public interest. And therefore we
3 have urged the defendants to make an agreement that the Court
4 will find acceptable. The plaintiffs don't believe it will be
5 right for us to try to secondguess the Court's specific
6 requirements as to what it would find acceptable. So we thought
7 it was appropriate for Thomson to make its proposal directly to
8 the Court. To that end Thomson has submitted a proposed
9 revision and we need to say that we do not support nor do we
10 object to Thomson's proposal.
11 As I said, we believe the original was in the public
12 interest and Thomson's proposal does not appear to provide
13 any -- it does appear to provide some additional relief compared
14 to the original. So we have no basis to object to it. We don't
15 believe it adds any anticompetitive element to the relief
16 package.
17 THE COURT: Let me ask this question although it may
18 be that it's more logical to get an explanation from Thomson and
19 West before you answer this unless you understand it better than
20 I. There does seem to be as part of the proposal for a number
21 of reasons a requirement that competitors of Thomson and West
22 would be required to submit detailed financial information to
23 Thomson and West in order to -- as a part of a licensing
24 agreement. I assume it is in order to -- well, I'll ask them to
25 explain why, but has the Department considered whether or not
7
1 requiring disclosure of that kind of financial information to a
2 competitor and certainly the largest competitor might in and of
3 itself raise some anticompetitive concerns?
4 MR. FOSTER: Yes, Your Honor. We have considered
5 that. We looked at that particular clause carefully and we
6 have -- how we interpret the books and records requirement and
7 we interpret it very narrowly to mean only the minimal amount of
8 books and records necessary to verify sales. And we don't
9 believe that would include any secret information, any
10 proprietary information, or other information that could hurt a
11 licensee's ability to compete. That's the definition we would
12 use in enforcing the provision.
13 THE COURT: That's all I have on that question for the
14 moment. It was -- I'll have to look at the language again.
15 I've got to sign something. I'll have to look at the language
16 again and see if I read it as narrowly as you do because you
17 all, I'm sure, will give me your views on what you intended and
18 what you think it means but it does raise a concern, I think,
19 unless it's carefully circumscribed with respect to competitors'
20 financial conditions.
21 Let me just sign this order if you'll excuse me for a
22 moment.
23 Sorry, Mr. Foster.
24 MR. FOSTER: Was there a question?
25 THE COURT: I have no other question on the books and
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1 records issue of you. I do have --
2 MR. FOSTER: Would you like me -- if it please the
3 Court, I'll turn the podium over to Thomson now.
4 THE COURT: Well, before you do that, let me ask you
5 this question. On the divestiture question, unless you want to
6 come back and deal with it afterwards, I had always assumed that
7 the Thomson product would probably be divested to lots of
8 different people and now I see that if I'm reading it right
9 they're all being divested to Lexis and that there are certain
10 antitrust releases which no one has defined in the papers
11 submitted to me.
12 At what point does the Justice Department determine
13 whether or not having these three giants now be two big giants
14 with antitrust releases in place might in and of itself have
15 more serious dramatic anticompetitive effect upon the other
16 people in the marketplace? Shouldn't that be done before I
17 enter a final judgment? And shouldn't those people have an
18 opportunity to be heard through the normal processes set forth
19 in the plan?
20 MR. FOSTER: You referred to the normal processes
21 under the Tunney Act and that's where I'd like to start. This
22 particular consent decree as it concerns divestitures looks like
23 almost every other merger consent decree that comes out of the
24 Department of Justice.
25 It provides for a divestiture prospectively to some
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1 other firm subject to the approval of the Department and in this
2 case the State plaintiffs, for State specific products. We do
3 take a careful look at the proposed divestiture for its
4 competitive effect on the industry involved and we're in the
5 process of doing that in this particular case. But there is
6 nothing unusual in having a divestiture after a consent decree
7 is entered, nor is it unusual to have a group of divestiture
8 products sold to one firm and that's not leading to an
9 anticompetitive effect.
10 THE COURT: So essentially what you're saying, if I
11 hear correctly, is that -- maybe I'm putting words in your
12 mouth, maybe I'm not, that essentially the consent decree says
13 that under the consent decree and under my opinion, the first
14 part of my opinion, all other things being acceptable to me,
15 namely star pagination, I should go ahead and enter a final
16 judgment and the final judgment then says that post-judgment or
17 even as we speak you are doing -- you're doing an analysis of
18 these divestitures and you still have to approve them but that
19 can all happen after the judgment is in?
20 MR. FOSTER: That's correct. We look at divestitures
21 and we look at it like in this particular case it would be the
22 merger which we do every day.
23 THE COURT: And the States under the consent decree
24 have -- each State has a special role with respect to things
25 that affect its particular State with respect to some of these
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1 divestitures.
2 MR. FOSTER: Each State has a particular role in
3 officially approving for State specific products and a
4 consultative role on the whole. I can speak for the
5 Department. We're working very closely with the States.
6 Working out a document and information request from Lexis. We
7 expect that will be in their hands very shortly and you can ask
8 the States what their role is, too.
9 THE COURT: And if you should disapprove any one or
10 more divestitures, then Thomson would have to go find -- either
11 they have to meet your concerns or Thomson would have to go find
12 another buyer for that particular product?
13 MR. FOSTER: That's correct, and if they could not
14 find an acceptable buyer, the assets would be transferred to the
15 authority of a trustee.
16 THE COURT: Right. In what situations -- let's put it
17 this way, when you publish in the Federal Register a competitive
18 impact statement and a proposed final judgment, you accept
19 comments, you analyze the comments, you react to the comments,
20 you file your response with the Court and publish the
21 responses. Are there ever circumstances where through
22 negotiations or through litigation there are such dramatic
23 changes in the final judgment or in the impact of the final
24 judgment that the Tunney Act permits or requires the Justice
25 Department to solicit additional public comments on the changed
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1 or amended proposed final judgment or in which it is appropriate
2 for the Justice Department to advise the Court in a supplemental
3 competitive impact statement as to its views?
4 MR. FOSTER: We took a look at that when we made some
5 amendment to the consent decree previously and we didn't -- I
6 did not become aware of any instances where we had to republish
7 and resubmit for comment a consent decree. I think how we
8 concluded was that where the changes in the decree moved the
9 decree further in the public interest and the things that had
10 been changed were specifically commented on, and it moved in the
11 direction that the comment went, that that did not require any
12 further publishing. I believe there has been a time or two
13 where we have withdrawn our consent altogether and made a new
14 consent decree. That isn't this case.
15 THE COURT: But my concern is -- I guess my concern is
16 this, the Tunney Act and the Court of Appeals have said that the
17 Court's role is a limited one, and it is. They've also said the
18 Court is not just a judicial rubber stamp. But isn't the flip
19 side of the Court's role being a limited one is that the Justice
20 Department's role is an aggressive one and the Justice
21 Department is the primary bulwark against anticompetitive
22 impacts and also the primary or at least the initial way in
23 which the Court is assured that a serious analysis and
24 investigation has been done in which it can have some conflicts
25 such that when circumstances change dramatically the Court needs
12
1 to have its confidence rebuilt and it seems to me there are a
2 couple of ways it can be done.
3 One is for the Justice Department to, not just to say
4 we don't object, although I understand why you're saying that on
5 star pagination, but to say we've looked at all of these things
6 that have happened since we submitted our original final
7 judgment and we're still confident and we have taken a fresh
8 look at the competitive impact and we're still confident, but
9 there's some additional things we should tell you so that you
10 could be confident too. That's one way to do it.
11 Another way to do it would be to say to the 26 people,
12 or probably the world at large, you commented previously on one
13 document, that's changed a lot and here's a chance to comment
14 again.
15 Another way to do it if the Justice Department doesn't
16 think that's appropriate is for the Court to reconsider all of
17 its decisions on the question of intervention and amicus status
18 so that now that West and Thomson are no longer competitors and
19 Lexis seems to be a happy camper, everybody else who might not
20 be has the opportunity if it doesn't have the opportunity, to
21 let the Justice Department know, to let the Court know. And I
22 have just serious questions about whether -- about whether all
23 of the issues that need to be ventilated publicly have been or
24 will be in view of the fact that Lexis appears to be buying all
25 of the divestiture products and there are some unknown,
13
1 undefined, unexplained antitrust releases out there. That's
2 separate and apart from my concerns about star pagination.
3 Maybe I'm asking the wrong person. Well, I'm not asking the
4 wrong person that question although there may be more
5 information that will become available.
6 MR. FOSTER: I think that Thomson will be able to best
7 answer what the antitrust releases entail. It's my
8 understanding that they are only in so far as this transaction
9 is subject of an antitrust matter, it's a release. It is not a
10 blanket antitrust release.
11 I think I'd like to go back to your original point
12 about what happens if the consent decree is changed
13 dramatically, how does the Department rebuild the Court's
14 confidence that the decree is in the public interest, and you've
15 raised some interesting possibilities.
16 In this particular case, I would submit that the
17 decree has not been changed dramatically. We have some very
18 small changes and if I can recite the ones that were made. We
19 took out a prohibition on licensees challenging Thomson and West
20 on the copyright. We lowered the pagination fee. And now we
21 have made some other changes regarding the license fee or
22 Thomson has proposed that we make those changes. Those are the
23 only changes. The other smaller items were simply
24 clarifications. Nothing else in the decree has changed.
25 From day one when we filed the decree Lexis could have
14
1 been the purchaser of all the divestiture assets. That was
2 freely open to comment in the original comment period. The
3 other items have also been fully commented on.
4 THE COURT: Good answer.
5 MR. FOSTER: Do you have anything else?
6 THE COURT: No. Maybe I should ask Mr. Ioannou if
7 you'd like to just sort of bring us up to date on the position
8 of the States.
9 MR. IOANNOU: Your Honor, my name is John Ioannou.
10 I'm an Assistant Attorney General in the New York State Attorney
11 General's Office. Today I'm representing the seven State
12 plaintiffs in this matter.
13 With respect to approving this proposal, we take the
14 exact position that the Department does. We neither support nor
15 object to it. It appears --
16 THE COURT: On the star pagination point?
17 MR. IOANNOU: Yes, on the star pagination.
18 THE COURT: And on the other points I take it that the
19 States and the Government urge for the reasons Mr. Foster just
20 mentioned that the judgment be entered on the divestiture point
21 subject to your later review.
22 MR. IOANNOU: That's correct.
23 THE COURT: And you all are in that process.
24 MR. IOANNOU: Yes, we are.
25 THE COURT: All right. Anything else?
15
1 MR. IOANNOU: No.
2 THE COURT: Thank you, sir.
3 MR. COLLINS: Good afternoon, Your Honor, I'll Dale
4 Collins. I'm representing the Thomson Corporation.
5 If I can take a second I'd like to introduce the other
6 people at counsel table. We have Jim Schatz who is representing
7 West, Michael Harris who is the general counsel of Thomson and
8 my colleague Mark Siemans.
9 Your Honor has asked a lot of questions. I'd like to
10 take a shot at answering some of them. Hopefully I can provide
11 at least some information for the Court.
12 Let me start with one of the easier ones and that's
13 the question of releases. Just to make sure we're clear about
14 what this is. This is really not mysterious, and as the Court
15 is aware, there has been some discussions, let us say, in
16 various forums between Thomson-West on the one hand and
17 Lexis-Nexis on the other. Some of those discussion have been
18 pursued rather vigorously in courtrooms and in connection with
19 sort of resolving this whole problem we'd like to get this whole
20 thing behind us.
21 That's the purpose of the releases and in particular
22 what the releases are going to. They're going to any State or
23 federal antitrust violations and unfair trade practices relating
24 solely to the acquisition, nothing else. They would relate to
25 anything that comes out of this particular action. I can't
16
1 really imagine that anything could but if there was anything we
2 took the abundance of caution and put those in. Also the Ohio
3 action which is the breach of contract action that Your Honor
4 referred to before.
5 THE COURT: What is the status of that?
6 MR. COLLINS: That is stayed right now, Your Honor.
7 THE COURT: And Mr. Reback -- we'll hear from him in a
8 minute. You say it's stayed.
9 MR. COLLINS: That's my understanding.
10 THE COURT: And meaning what?
11 MR. COLLINS: Well, it's basically right now the
12 breach of contact action in Ohio was over whether or not Thomson
13 engaged in an anticipatory breach in offering to sell Auto-Cite
14 and assign the Auto-Cite license agreement. Since the sale now
15 that's been entered into, we have an executory contract. That
16 sale is to Lexis-Nexis and consequently if that sale does in
17 fact close there can't really be a breach of contract.
18 THE COURT: That case would be over with the sale?
19 MR. COLLINS: That's right. At least it's my
20 understanding --
21 THE COURT: Is that right, Mr. Reback, as long as
22 we're on this issue?
23 MR. REBACK: I may be incorrect but it's my
24 understanding that we have in place a rolling stay. In other
25 words, there is a date for a preliminary injunction hearing.
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1 The judge granted our motion for expedited discovery and the
2 parties then jointly made a motion to stay all discovery pending
3 this Court's deliberations. And it's my understanding that's
4 where the matter now stands.
5 THE COURT: So there's a stay and there's some dates
6 certain but it can be extended and so on depending upon what
7 happens, is that what you're saying?
8 MR. REBACK: Yes, that's correct. I would at some
9 point like to address that because I think it will take a lot of
10 the mystery out of this.
11 THE COURT: I'll certainly let you do that, but what
12 you've just said, and it's before Magistrate Judge Merz in
13 Ohio --
14 MR. REBACK: Yes, that's correct.
15 THE COURT: I've spoken to him in my chambers and that
16 seems consistent with what he told me.
17 MR. REBACK: Yes, Your Honor.
18 MR. COLLINS: That's correct, Your Honor. I stand
19 corrected. Mr. Reback is correct, that the preliminary
20 injunction date in some sense hasn't been stayed but there are
21 no active proceedings going on as far as discovery and the Court
22 in Ohio is well aware of what's happening. Our expectation
23 hopefully will be fulfilled is that the transaction will close
24 and the Ohio action will go away. None of these releases by the
25 way is in effect right now. They're all contingent on the
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1 closing of the transaction.
2 Just to complete the releases point, in addition to
3 what I've already said about the possible violations and
4 antitrust violations in connection with the acquisition, this
5 action, the Ohio action, there's also a release in connection
6 with Thomson's enhancement of the Instacite data base. That's
7 the data base that there's been some discussion about that.
8 There's a release with respect to that.
9 And then there's another release, sort of an ancillary
10 one that, goes to certain false aseptic and just advertising
11 type claims, interference with contractual relations that would
12 have occurred, claims which would approve before the closing
13 date but that's it. It's not a global release on anything that
14 either one of these companies have ever done before. As I said,
15 it was primarily designed to just clean up this acquisition
16 situation.
17 THE COURT: So the bottom line is that no other
18 competitors need be worried about these releases.
19 MR. COLLINS: That's right, Your Honor, I can't
20 imagine that there should be a competitive concern by any third
21 party about these releases and of course, you know, whatever
22 goes on in the industry is subject to the scrutiny of the States
23 and the Justice Department as well and all third-parties
24 naturally have -- whatever antitrust claims they may have in
25 which to assert, they're free to assert it. There's nothing
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1 that we can do at Lexis-Nexis that would stop them from doing
2 that.
3 THE COURT: Unless you want to amend the license
4 agreement.
5 MR. COLLINS: We would amend it if they would release
6 us from all the claims that they have against us. That's the
7 releases situation. I think as far as the Lexis-Nexis binds
8 everything. I have two points on that.
9 One it was actually it was Thomson's conception all
10 along that we would bid the products out to a single buyer as
11 opposed to multiple buyers and that's been, I think, well known
12 at least from the plaintiffs, I'm sorry we didn't make it well
13 known to the Court. It was really as much as anything for
14 administrative convenience on our parts.
15 We also thought quite frankly that we would maximize
16 the value of the properties if we could find a single buyer as
17 opposed to separate buyers. This is a fairly substantial
18 package of legal publications. And they probably have, at least
19 we believe they have more value when taken together than they
20 would be separately. If they were sold to a independent
21 financial buyer they could establish that buyer as a new force
22 in the arena, in the marketplace, and you know, for the same
23 reason that the strategic buyer wanted to buy them,
24 strategically they would have more value to the strategic
25 buyer. It was our hope for reasons of expediency and maximizing
20
1 the value that we would sell them to one person. And we did go
2 through a fairly extensive auction process in which Lexis-Nexis
3 did come out to be the winner of the process and consequently
4 entered a contract with them to sell them all of the divestiture
5 products. So that's the status on the divestiture. Now, that
6 divestiture is subject to the approval, as Your Honor has noted,
7 of the plaintiffs in this case.
8 I think one of the ways to think, at least the way I
9 think about these types of proceedings, about consent decrees
10 and approvals of the buyers is basically along the following
11 lines, the tip of the case, as Mr. Foster has already pointed
12 out is that the consent decree is presented to the Court and
13 usually there's not a buyer that's going to come along any time
14 soon. The typical case is that the buyer comes in at the last
15 minute and the Court approves the decree months and months and
16 months in advance.
17 I think in part not to impose too much on the time of
18 the Court and also to give the Justice Department and the States
19 in their roles as executive branch type agencies to do their
20 prosecutorial function in investigating these consent decrees
21 universally require that the approval of the plaintiffs be
22 obtained before the defendants can make a sale. They also don't
23 require that the Court approve those sales, and at least it's my
24 conception as an observer of this for some years that sort of
25 the paradigm, if you will, in which that analysis is made is
21
1 like a regular merger paradigm as Mr. Foster has pointed out.
2 The question really is twofold. The first question is
3 the normal question and that is would the acquisition by the
4 proposed buyer of the divestiture products itself be an
5 anticompetitive acquisition and subject to challenge under
6 Section Seven of the Clayton Act. The answer to that is yes, of
7 course the plaintiffs should not approve, and I'm convinced they
8 would note approve a transaction if they thought it threatened
9 Section Seven violation. Now, if it didn't threaten Section
10 Seven violation, what that really implies is it's not going to
11 have a negative or anticompetitive effect on the marketplace.
12 That's the threshold question, will there be an anticompetitive
13 effect.
14 Now, the second question is will the objective of the
15 consent decree be served, whether the objective of the consent
16 decree is to remove certain products from the hands of merging
17 parties and put them in the hands of the third party who will be
18 able to compete effectively with these products, and typically
19 in a case of a strategic buyer which itself does not present a
20 Section Seven concern the answer to that latter question is
21 going to be of course it can.
22 So, the way the consent decrees typically work is the
23 Court often does not involve itself. It almost always does not
24 involve itself. I'm not aware of a single case in which a Court
25 has involved itself in the question of the adequacy of the
22
1 buyer. The Justice Department, as I say, has historically
2 applied the usual tests of anticompetitive acquisitions to these
3 and they've applied it somewhat more aggressively than they do
4 even in the normal case and the reason for that is they bear the
5 burden of proof, if you will, in the normal non-Court order
6 divestiture situation. If we were doing a transaction and they
7 sought to object to it they would say the only way you can
8 really stop us is go to Court and get a Court order against us,
9 get a preliminary injunction under Section Seven. In this case
10 we bear the burden of proof. They can always say no. That the
11 consent decree did enable us to come to you and ask you to
12 examine the propriety of their decision saying no. But
13 typically, as I say, the Courts do not involve themselves in the
14 approval of the buyer and largely I think again it's somewhat
15 because of timing. The court's usually long gone as far as the
16 at least the day-to-day supervision of the consent decree at the
17 time this comes about. To the best of my knowledge there has
18 not been a question either raised or a serious problem ever
19 raised under this. So I think --
20 THE COURT: But certainly one of the -- this is
21 perhaps a slight aside, but maybe you're going to get to this
22 question. One of the things that flows from the decision to
23 sell everything off to Lexis is that all of the myriad issues
24 that have been written about other commentators, argued in
25 amicus briefs and everything, that there's no one left to
23
1 challenge either the process that the Justice Department or the
2 Court has gone through or the decisions that have been made with
3 respect to this consent decree because the Justice Department
4 and all the States agree to everything or don't object and you
5 don't even have Mr. Reback around to argue, he's playing a much
6 more passive role than the last time I saw him. And you may or
7 may not want to deal with that today because I know the
8 Hyperlaw's motion was just filed the other day but it does raise
9 a question whether or not there are -- I guess one way to look
10 at it is whether or not some of the concerns that I am raising
11 today can be dealt with by revisiting some of the decisions with
12 respect to intervention that I previously reached. Not that you
13 necessarily are happy with that, but that would at least enable
14 somebody to raise some of the questions further.
15 MR. COLLINS: Your Honor, if I may though, one of the
16 ways to look at this is to break sort of what's happening here
17 into two parts. One is the consent decree that is before the
18 Court and the other is the approval of the buyer.
19 THE COURT: Right.
20 MR. COLLINS: Okay. Now, as far as the consent degree
21 before the Court I think Mr. Foster has correctly characterized
22 the situation. There have been some changes but the changes are
23 relatively, depending I guess on your perspective, minor and in
24 any event moving in the direction universally of furthering
25 public interest, if you will. Every one of them has been
24
1 contrary to the self-interest of Thomson and West. Each one of
2 the changes in the consent decree itself. The consent degree
3 was subject to extensive comment by the parties including --
4 well, by third party, including extensive comments that were put
5 in by Lexis-Nexis. Basically all the commenters were on a level
6 playing field at the time when the request for public comment
7 came out. The comment sort of came in. No one could really
8 count on Lexis-Nexis or anyone else making particular comments.
9 Presumably the people who commented said what they had on their
10 minds.
11 I think if you break this down now into the part
12 between the divestiture on the one hand and star pagination on
13 the other, the principal commenter by far on the divestiture
14 provision was Lexis-Nexis and when you compared to star
15 pagination there was virtually no comment on the divestiture
16 provisions outside the comment by Lexis-Nexis.
17 So if you look at the consent degree and ask is there
18 any reason to open this up for further comments, as far as the
19 divestiture provisions are concerned, in the consent degree, and
20 I'll isolate that from the question of the adequacy of the
21 buyer, I don't see any reason why the Court should open that one
22 back up. And there the Court did have an extensive treatment of
23 those questions in the opinion. The comments all dealt with the
24 Justice Department and their response to public comments. Your
25 Honor dealt with them individually in the opinion and as you
25
1 pointed out you probably don't like the flood of papers that
2 come into your office, people who have something to say are
3 still making their thoughts known to you.
4 And from what we -- when I read the papers I see that
5 the principal objections as far as the divestiture provisions
6 are concerned are really gone and so I see no reason why there
7 should be any need to recomment on the divestiture provisions in
8 the consent decree. They only have the question of whether or
9 not there should be comments on the adequacy of Lexis-Nexis as a
10 buyer.
11 As Mr. Foster has pointed out, that has never really
12 been traditionally apart of the Tunney Act proceeding. That is
13 by the consent decree committed to the discretion of the Justice
14 Department with certain rights of appeal by the parties. The
15 Justice Department in the exercise of its prosecutorial
16 discretion or its discretion here to approve unquestionably will
17 entertain whatever comments people wish to make to it just as it
18 would in any other merger investigation.
19 And the parties haven't been silent about the
20 existence of this particular purchase and sale agreement. I
21 think it's pretty widely known in the legal community today that
22 Lexis-Nexis is buying the divestiture products or signing the
23 agreement to buy the divestiture products. I have no doubt that
24 if people were interested in commenting they will make their
25 comments known to the Justice Department in the course of its
26
1 review and to the States as well.
2 Given the comments that have occurred so far I'm not
3 sure we're going to see a whole lot of it. But there is a means
4 for it already and that leads to the question of star pagination
5 and the question is should the consent degree be reopen for
6 either a renewed competitive impact statement or public comment
7 on what is now the proposals for modification. In the --
8 THE COURT: Well, I -- let me put it this way, my
9 initial -- my questions that went to renewed public comment and
10 competitive impact statement were primarily addressed to the
11 divestiture question in the decision that Lexis-Nexis would be
12 the buyer of everything and the fact that so little information
13 seemed to have been provided in the joint status report that I
14 got. But I need the details of that and therefore I think it's
15 difficult for members of the public to comment on that. I'm
16 not -- I'm -- my preliminary thinking in coming in here today
17 was not so much the need for further public comment or
18 competitive impact statement with respect to star pagination, I
19 think there have been a lot of comments on star pagination.
20 I think Mr. Schatz and his colleague persuaded the
21 Justice Department, they were involved in that, too, but West
22 persuaded the Justice Department that the license agreement as
23 originally proposed was opposed. I have no problem on that.
24 Not with the Justice Department or the commentators so I
25 don't -- again I haven't thought this all completely through.
27
1 That's why we're having a status hearing. But I'm not inclined
2 to think we need more public comment or competitive impact
3 statements certainly with respect to the star pagination issue.
4 With respect to the other issues. I think that you already just
5 discussed. But I do think we need to talk about what exactly is
6 proposed with respect to star pagination.
7 MR. COLLINS: Would you like me to turn to that now,
8 Your Honor?
9 THE COURT: If you've said all you want to stay about
10 the other issues.
11 MR. COLLINS: If there are further questions on the
12 other issues I'll be delighted to address those first. I can
13 take them one at a time.
14 THE COURT: If you want to talk about it now or at the
15 end or do you just want to wait, maybe you want to wait and
16 reply to the recently filed motion of Hyperlaw with respect to
17 intervening for purposes of appeal.
18 Lexis-Nexis had asked originally before you reached
19 your accommodation with Lexis-Nexis to intervene for purposes of
20 appeal in order to persuade the Court of Appeals that I might be
21 wrong in certain of the decisions that I made in my opinion and
22 on January 16 I guess it was I denied that but without prejudice
23 to renewing it when we got to the end of the process.
24 Lexis-Nexis presumably no longer wants to appeal. Do you want
25 to talk about it or do you want to reply in writing or both to
28
1 the motion of Hyperlaw?
2 MR. COLLINS: Actually, Your Honor, I'll be delighted
3 to talk about it. Unfortunately we did not receive the Hyperlaw
4 papers before coming in.
5 THE COURT: Well, maybe the thing to do then is for
6 all of the parties in the case to take the normal number of days
7 or less than normal number of days if you want to reply in
8 writing to what Hyperlaw says in terms of their desire to be
9 allowed to intervene for purposes of appeal the issues that they
10 want to argue in the Court of Appeals but also in the context
11 and again the background of what I said today about, you know,
12 there seems to be nobody left that has been given a voice in
13 this litigation that will have a voice in the Court of Appeals
14 if I don't grant your motion.
15 MR. COLLINS: Your Honor, may I ask for some guidance
16 in replying to the papers, however, and that is Hyperlaw is on
17 record in its public comment to the Justice Department and its
18 various other filings with this Court about the nature of its
19 concerns. As least up to the filing of this morning or whenever
20 it was.
21 THE COURT: Right.
22 MR. COLLINS: When we respond, should we assume that
23 any appeal that it would be given leave to take as an intervenor
24 would be limited to the issues that it has already raised or
25 should we assume that it basically is free to roam widely over
29
1 the decree and raise any issues that it sees fit to raise.
2 THE COURT: Well, is Mr. Kessler here?
3 MR. KESSLER: Yes, Your Honor.
4 THE COURT: Mr. Kessler, you heard the question.
5 Attached to your motion as an exhibit is a notice which lists
6 the two questions that you want to appeal on and I guess Mr.
7 Collins wants to know, and if you're not ready to answer it now
8 we can figure out a procedure for you to do so, whether or not
9 in responding to your motion he ought to assume that those are
10 the only two issues or whether it might be broader than that.
11 MR. KESSLER: Your Honor, those were the only two
12 issues we had at the time. However, that was written and filed
13 before the -- before we had the proposed final judgment.
14 THE COURT: Well, maybe the best way to deal with it
15 is to give you -- let's decide on a number of days by which Mr.
16 Kessler can supplement what he's filed so that the defendants
17 and the plaintiffs can respond in one -- you don't have to
18 respond together, but so that each side can submit a single
19 response rather than rounds of it and since it's for purposes of
20 intervening on appeal, it's not going to delay anything else
21 that I need to decide to do, I don't think. How much time do
22 you think you would want to supplement what you've already
23 filed?
24 MR. KESSLER: I think we could do that within a week,
25 Your Honor, but the question I would have is since our motion
30
1 was directed toward intervention strictly for purposes of
2 appeal, there have been no other decisions by Your Honor other
3 than those -- your decisions are what they are and some of the
4 issues that have been talked about today depending on how you
5 might rule might be things that we would be interested in
6 raising on appeal but they're not really decided yet.
7 THE COURT: True. Well, I'll give you two choices
8 then. One is you can take a week or so to supplement what
9 you've already filed and everybody will respond to that or you
10 can wait until I either sign a final judgment or do something
11 else in response to today's -- everybody who is already in the
12 case, and you are an amicus, everybody who is already in the
13 case can respond to West-Thomson's motion to amend the proposed
14 final judgment within the requisite number of days.
15 I assume the Government is going to file something.
16 The plaintiffs are going to file something with -- in response
17 to it and I don't know whether Mr. Reback is going to file
18 anything. He's an intervenor. And -- he's an amicus and so he
19 doesn't necessarily have to and, you, Mr. Kessler, are also an
20 amicus, but if you want to file something with respect to the
21 pending motion from Thomson and West you can do that and you can
22 wait until I rule on that motion.
23 MR. KESSLER: Your Honor, one other point here. We
24 only have 60 days from the time of the -- to the extent that
25 your order of December is treated as a final order, we only have
31
1 60 days, but aside from that issue I think we would choose to
2 respond to the Thomson and West filing yesterday and in the
3 normal course and then supplement, we can supplement our motion
4 with respect to any additional issues so that the other parties
5 can respond to our motion in one single shot.
6 THE COURT: So you're going to supplement this and
7 they'll respond within the next week or so and then -- so that
8 you preserve your time limits from the December 23rd order.
9 MR. KESSLER: I think --
10 THE COURT: But you then may also file something with
11 respect to the pending motion of West and Thomson and depending
12 on what I do you may want to file another notice of appeal, is
13 that what you're saying?
14 MR. KESSLER: Yes, Your Honor.
15 THE COURT: All right.
16 MR. KESSLER: I'm concerned about the time limit.
17 THE COURT: That's fine. It's now the 6th, so why
18 don't you file something -- in fact, well, I won't tell you how
19 to write your papers. If you file something in a week, that's
20 the 13th, and if everybody else has a week to respond to that,
21 that's the 20th. That only gives me 20 days to rule on your
22 motion. You might want to file something faster even if it's
23 just a list of additional issues or under the rules can I extend
24 your time to appeal?
25 MR. COLLINS: Your Honor, if I may? Mr. Kessler
32
1 actually brings up a very interesting point about the December
2 23rd order and the 60 day clock for appeal. Really I'm not sure
3 even if his client was granted intervenor status would they
4 appeal with respect to a denial of an order entering a consent
5 degree, but there are other parties in this case who do have an
6 in interest in going forward and I can tell Court if we didn't
7 have a decision before that 60-day period we would have to
8 protect our position and we will have to notice an appeal.
9 THE COURT: I think anybody can and should do that and
10 then you can always withdraw it.
11 Mr. Kessler, if you want to supplement this, my
12 suggestion is that you do it as fast as possible even if it's
13 just to supplement with additional issues, and not a full
14 briefing, and then why don't I give the Government and
15 West-Thomson a week to respond to whatever -- to this document
16 that I already have from Mr. Kessler plus anything he files in
17 the next few days and I will try to rule on that by -- I will
18 rule on it before the 23rd.
19 MR. KESSLER: That's satisfactory, Your Honor.
20 THE COURT: And if you don't hear from me by the 22nd,
21 call my law clerk. If you don't hear from me by the 21st, call
22 my law clerk. We interrupted you.
23 MR. COLLINS: Your Honor, if I may just stay with the
24 divestiture for a second. One of the things that Thomson and
25 West would like to ask the Court to consider is, actually to
33
1 reconsider, if you will, is to bifurcate in some sense the
2 divestiture questions from the star pagination questions. If
3 there is no serious appeal coming forward or argument coming
4 forward on the divestiture questions we do have an executory
5 contract to sell the products. The only remaining condition,
6 material condition to the closing of that sale is the
7 plaintiff's approval. I think that you should ask Mr. Foster
8 but I believe that the plaintiff of course has already said they
9 are going forward with their review and I believe it is that
10 expectation that they will have completed that review within,
11 literally within the next couple of days, next week or something
12 like that. It's not something that I think is on a schedule for
13 months and months and months and we would urge the Court to take
14 into account that there are some social costs, if you will, of
15 not going forward with the divestiture. We have employees who
16 are basically living under somewhat of a cloud of uncertainty
17 that, you know, what's going to happen when the products are
18 sold, basically what happens to their lives professionally. The
19 product, although we have an obligation to support them and
20 Thomson and West continue to support them, are in some sense in
21 limbo since we know we are not going to be the ones to own them
22 in the long run and to put them in the hands of the owner sooner
23 than later would make them be able to upgrade them more quickly
24 and modify them as this buyer thinks would make it more
25 attractive to the legal community. And I also have no doubt
34
1 given the fact that there is now an executory contract, that the
2 buyer would rather have the product in that hand sooner rather
3 than later. That is something that Mr. Reback can address.
4 So if there didn't seem to be a serious question about
5 the adequacy of the divestiture provisions, what we would
6 respectfully request of the Court is that you basically let the
7 plaintiffs know that you don't have an objection to them going
8 through their normal approval process and revealing whatever
9 conclusion they come to at any time of that process, whether
10 it's one of approval or one of rejection. So we can get these
11 things divested and to link them, if you will, from the star
12 pagination question if there is a serious question going forward
13 on appeal and on star pagination.
14 Would you like me to address the star pagination
15 issue?
16 THE COURT: Yes.
17 MR. COLLINS: Let me address the simple question of
18 books and records first. There's really nothing nefarious going
19 on here. There is a provision in our proposal which basically
20 has a cutoff based on sales as to whether or not companies would
21 have the benefit of the addendum that we proposed. There has to
22 be some way to measure that, okay? To see whether or not a
23 company satisfies -- is within the addendum. Within the
24 $25,000,000 sales limit.
25 THE COURT: What companies are going to be excluded
35
1 from the addendum?
2 MR. COLLINS: I think in the legal publishing area,
3 not very many.
4 THE COURT: Lexis is gone.
5 MR. COLLINS: Matthew Bender is out. CCH, for
6 example, BNA.
7 MR. FOSTER: Your Honor, I do have a list of legal
8 publishers that would be able to take advantage of the license.
9 They are less than $25,000,000.
10 THE COURT: So the list that Mr. Collins has just
11 given me were those that are more than 25 million.
12 MR. COLLINS: That's right.
13 THE COURT: But you think it might be CCH, BNA and
14 Matthew Bender.
15 MR. COLLINS: BNA I believe is independent.
16 MR. FOSTER: BNA would not qualify. They have sales
17 of $300,000,000.
18 THE COURT: What about Hyperlaw.
19 MR. FOSTER: Hyperlaw certainly would be able to take
20 advantage of the license change. As well as Geronimo
21 Development Corp., Tax Analysts, CD Law, Oasis Publishing,
22 International Copy Research and Darby, all of whom commented.
23 THE COURT: Right. So --
24 MR. COLLINS: Your Honor, it's hardly necessary for
25 Thomson to delve into the books and records of companies in any
36
1 depth to determine whether or not this threshold to satisfy for
2 any given company -- indeed I mean all Thomson is really looking
3 for is the question of whether or not a company meets the
4 $25,000,000 threshold or not. They don't have to know, for
5 example, 24.9 or 13.6 or 47.8. Is it under the threshold.
6 That's a question that many companies will be able to answer.
7 Companies are going to have in the regular course of business,
8 you know, financial information, a balance sheet or an income
9 statement that will show sales. If some company really has a
10 problem with us looking at that Thomson would be happy to refer
11 the matter over to a third-party independent accountant just for
12 a certification. This really is nothing more than the question
13 of how do you determine whether a company has, you know -- meets
14 the sales threshold or not and as I said we could be absolutely
15 delighted if someone wanted to employ a third-party accountant
16 on a certification process to use that.
17 THE COURT: That's all predicated on my statements in
18 the opinion that I was concerned about small publishers.
19 MR. COLLINS: That's correct, Your Honor. What we
20 tried to do, the exercise that Thomson and West had to go
21 through was physically take the concerns that the Court
22 expressed in its December 23rd opinion and try to marry those
23 with the concessions that the companies have already made,
24 including additional concessions on the star pagination issue.
25 Such as lowering the license fee.
37
1 For example, since the day that we actually cut the
2 deal with the Justice Department on the consent decree, the deal
3 that we have today is certainly different in some respects than
4 the ones we had on the day that we cut this deal and we have to
5 make a decision on when is it commercially reasonable, if you
6 will, to stop, and in looking at the Court's opinion it struck
7 us that there were three concerns that we had over just an
8 outright sort of royalty free license.
9 The Court's suggestion that we considered was to grant
10 all comers a license, a royalty free license until such time as
11 there was a final determination once and for all as to the
12 validity of the West copyright.
13 Our first concern was how do we determine that we're
14 at the point where we have a final judicial decision? If the
15 Supreme Court decides then we can probably be fairly safe.
16 Assuming that that's final. But this is a case where there's no
17 guarantees it will go to the Supreme Court. There can be splits
18 in the Circuits.
19 THE COURT: What happens if there is a split in the
20 Circuits.
21 MR. COLLINS: I would assume that Your Honor would
22 view this as not being a final determination. And my --
23 THE COURT: But practically speaking, does that mean
24 that West would then act one way with its licensees in one
25 Circuit and a different way in another Circuit.
38
1 MR. COLLINS: Your Honor, I have no idea what the
2 answer to that question is. It's one that we haven't confronted
3 yet and it's one hopefully that we won't confront.
4 THE COURT: I'm sorry, Mr. Collins.
5 MR. COLLINS: Your Honor, let me just go back on that
6 last statement. If the proposal that we put forward is accepted
7 by the Court and there's a split in the Circuits it would be at
8 least our view that there's not a final determination and all
9 benefits that would accrue under the addendum, you know, to
10 parties, pending a final determination, would continue to
11 accrue.
12 So it brings us to the question of it strikes me, all
13 though the probability may be small, there is still some
14 probability out there that a considerable length of time, years
15 if not decades, could pass where there is not what one would
16 call a final determination, this is not an in rem action. We
17 can't basically judge outright against the world. We can do
18 that in the Supreme Court but not through the District Courts
19 and the Court of Appeals and there could be just a continuing
20 sequence of actions coming up with various decision from one
21 Court or another. At least it's conceivable.
22 And what we have proposed in order to not put us in
23 the position where there is really an undefined period of time
24 in which we would be not collecting royalties as we have put in
25 the cutoff date, the cutoff date is December 31st, the year
39
1 2000, roughly four years from now.
2 There are, as Your Honor is well aware, active
3 litigation going on, so it's not as if new litigations have to
4 start up. There's a fair chance, if not a very good chance,
5 that there will be a resolution by that time and if there is,
6 then the cutoff date is meaningless. If there is not, then
7 under our proposal we will be collecting royalties from
8 licensees, from companies that wish to enter, they're not
9 required to, but from that day forward but would not collect
10 the royalties from now and basically 2001.
11 THE COURT: What you're basically telling the
12 licensees between now and then is that they should put some
13 money aside either in fact or in their planning because after
14 December 31, 2000 they've got 30 days to pay off the preceding
15 four years.
16 MR. COLLINS: That's actually not what I intended,
17 Your Honor, and this proposal is not what Thomson intended and
18 if we have written it that way, then we need to change it. As
19 December 30th, the year 2000 comes along and, say, there's no
20 final decision and someone has been a licensee for roughly four
21 years, prior to that time, in beginning January 1st, 2001 on a
22 going forward basis only they have to start to pay. So they
23 don't need to escrow anything because of the cutoff date as far
24 as the deferred payments are concerned. Okay. They might want
25 to think of their business, planning on what they want to do if
40
1 in fact there is no final decision by the year 2001 and they
2 have to pay on a going forward basis but for any payment that I
3 will call deferred which is really not all that accurate because
4 it might be forgiven but at worse from the perspective of a
5 licensee the deferred payment would not be due until 30 days
6 after there was a final determination, whether that
7 determination was in 1998 or in 2002 or 2010.
8 THE COURT: I see what you're saying. So, in other
9 words, if you're deferred for four years you can still wait for
10 a final determination even though it comes after January 1, 2001
11 or before the deferred payments are paid?
12 MR. COLLINS: That's correct.
13 THE COURT: But then, but then they will be paid --
14 MR. COLLINS: But then they're due, Your Honor.
15 THE COURT: All right.
16 MR. COLLINS: And just to go to that point, I mean
17 this is a point on retroactivity and nobody likes my example
18 with the trees so I'm not going to go through that but the idea
19 is that either West has the rights that it claims that it has or
20 it doesn't and when a copyright Court decides it doesn't,
21 talking about creating any new rights, it's either going to say
22 you've always had the rights or you never had the rights. If
23 it's the decision you never had the rights so there will be no
24 collection of deferred payment. They will all be forgiven and
25 it's expressed in the addendum.
41
1 If the Court determines that West did in fact have the
2 rights and people used West's property, then it should be
3 compensated under the license scheme, the fee arrangement that's
4 set forth in the license agreement, and that's what this does.
5 Although it could have been written a slightly different way it
6 is somewhat beneficial to the licensees but there's not an
7 adjustment for interest. It's just a nominal amount that's
8 due. That's the retroactivity provision. And Your Honor really
9 has already discussed what we call the large company exception.
10 We do have empirical evidence that at least one large
11 company in particular has not been deferred from entering the
12 market and indeed going forward with star pagination and that is
13 Lexis-Nexis. It has had a contract with star pagination which
14 it has paid significant amounts for a number of years. It
15 certainly was not deferred from entering the market because of
16 license fees and we would anticipate that no other large company
17 would. It's conceivable that small companies might, so we have
18 an exclusion for them.
19 THE COURT: Is Lexis-Nexis excluded by virtue of the
20 $25,000,000 cutoff or is Lexis-Nexis excluded or otherwise dealt
21 with by virtue of some other arrangements or discussions going
22 on in the meantime?
23 MR. COLLINS: The answer is that under the consent
24 degree Lexis-Nexis does not have any rights, under our proposal,
25 the addendum, Lexis-Nexis would not have any rights to take
42
1 advantage of these deferments and what we've been talking about
2 in the addendum.
3 THE COURT: Because of the $25,000,000. They're not
4 specially dealt with in the addendum.
5 MR. COLLINS: That's right.
6 THE COURT: Are they not specially dealt with?
7 MR. COLLINS: They're not specially dealt with in the
8 addendum other than the $25,000,000 cutoff. To answer Your
9 Honor's question in the course of the contract negotiations
10 there is a most favored nations clause that runs to the benefit
11 of Lexis on star pagination.
12 THE COURT: What is meant by a final judicial
13 determination?
14 MR. COLLINS: Your Honor, I have no idea.
15 THE COURT: There are several ways to look at it, I
16 suppose. The Eighth Circuit -- by way of hypothetical only, if
17 the Eighth Circuit agrees with West and the Second Circuit
18 agrees with Judge Merz, we have two determinations of two
19 different circuits. Then somebody petitions for cert and cert
20 is denied. Are we going to call that a final judicial
21 determination or are we going to say that, well, as is often the
22 case the Supreme Court sees a conflict in the Circuits and
23 decides not to deal with it now but maybe three years later some
24 other Court has done something, the Sixth Circuit or Ninth
25 Circuit, and the Supreme Court said, well, maybe now it's an
43
1 important enough issue that we will deal with it.
2 MR. COLLINS: That actually was pretty much the
3 example I had in mind when I made the recommendation to the
4 clients that we put in something in the proposal like a cutoff
5 date. My view is, Thomson's views is that with a split in the
6 Circuits there would not be a final judicial determination of
7 the validity of the West copyright claims once and for all, to
8 use your language. It would still be a matter of uncertainty
9 because by definition because of the split in Circuits and
10 consequently as far as the addendum is concerned several things
11 would happen. One is there would be no collection of any
12 deferred royalties. There's now a final judgment. No royalties
13 would be due and owing.
14 By the same token, since there's no final judgment
15 that says West doesn't have the right that it claims, there
16 would be no forgiveness either and the state of affairs would
17 just continue until there was some final determination, as far
18 as the deferments are concerned. Of course, with the cutoff
19 date in there on a going forward basis, people would have to
20 pay.
21 THE COURT: Interesting.
22 Anything else, Mr. Collins?
23 MR. COLLINS: I believe that does it. I would again
24 urge the Court to consider our request to bifurcate the
25 divestiture side from the star pagination side so we can go
44
1 forward as quickly as we possibly can with the divestitures.
2 Thank you, Your Honor.
3 THE COURT: Thank you.
4 I think Mr. Reback wants to say a few things.
5 MR. REBACK: Gary Reback on behalf of Lexis-Nexis Your
6 Honor. Good afternoon.
7 THE COURT: Good afternoon.
8 MR. REBACK: Your Honor had raised some questions
9 about divestitures. Mr. Collins, feel free to object whenever I
10 move over the line, I regret that this has come up so
11 mysteriously. I really do. I have sort of a different view of
12 the Tunney Act process than I think the Court does or the
13 parties do. These two companies --
14 THE COURT: Some of my comments today could be taken
15 to be more along the lines that you've argued in the past and
16 other people have argued in the past.
17 MR. REBACK: I was wondering, Your Honor, about how
18 delighted you were to receive those comments, in the past having
19 ruled against me. I'm wondering now whether you wish me to go
20 back up to the Court of Appeals and argue with Judge Silberman
21 again. It strikes me as very curious. I lost on those issues
22 here but I did do what Your Honor suggested in its opinion which
23 is that we resorted to self-help and we sued Thomson in Dayton
24 and our motion for expedited discovery was granted and we had --
25 we have a preliminary injunction date and we filed our motions
45
1 here and either as a result of that vigorous activity or because
2 they were tired of dealing with this or because of something, we
3 got them to the negotiating table and it was a very difficult
4 negotiation because frankly these companies don't like each
5 other. They have sales reps that compete against each other
6 every day of the week in every major law firm in the country and
7 the consequence of that was a settlement. And that settlement I
8 believe is strongly in the public interest because it preserves
9 the ability to use these assets effectively against
10 West-Thomson, and one point at which Your Honor and Lexis have
11 never seemed to be in accord is how effective competition seems
12 to work in this market and we strongly believe that having these
13 assets in one place enables effective competition, and I'm sorry
14 Miss Foote from California is not here because she's made that
15 point repeatedly to us, seeking assurance that we would support
16 California publications, for example.
17 So the assets have far greater value if we can package
18 them together and sell them to a competitor and that's the
19 reason we've reached the result we've reached here. It's not
20 a -- I had the feeling that taking the bench Your Honor felt
21 that there was something secret or mysterious and I just want to
22 assure the Court that's not the case.
23 THE COURT: You know, basically I see everybody
24 fighting vigorously all this time against the backdrop of a
25 proposal that ends years or decades of Thomson and West fighting
46
1 vigorously against each other and you were championing the third
2 largest player out there, and now you've reached an agreement on
3 virtually everything and it may well be, as you say, in the
4 public interest and I'm apprised of it in two pages which
5 basically doesn't tell me anything.
6 MR. REBACK: Well, that was not my decision to make.
7 I think that the Court would derive some greater assurance
8 seeing this deal that on each and every point in the proposed
9 final judgment there is a more competitive outcome than what
10 this Court contemplated. And I would make that representation
11 to the Court. I don't know whether Mr. Collins will disagree or
12 not. The Government has the documents and they've had it for a
13 very long time. It is beyond my power to give them to the Court
14 unilaterally. I cannot do that.
15 Now, I want to make it clear that the timing here is
16 an important point and it's a very important point for reasons
17 other than the social reasons that Mr. Collins mentioned. We
18 have -- one of the things that we were concerned about and that
19 we argued about coming in here is whether there would be
20 employees to support the divestiture properties and as a
21 consequence of this tough negotiation we've gotten that. But
22 these people are, as Mr. Collins said, in limbo. We need to go
23 in and get them signed up and we can't do that completely until
24 there's an adjudication by this Court.
25 THE COURT: Do you also need to do that, for the
47
1 Justice Department and the States to finish their process which
2 Mr. Collins suggests is happening very quickly.
3 MR. REBACK: We have been in the process of
4 cooperating with at least some of the States I know about. Now
5 I don't know what we filled out with the Department of Justice.
6 Mr. Foster can talk about that. But the States have sought
7 assurances from us that we will support employees, that we will
8 support publications and I would ask if not us, who then? I
9 mean the concept that these divestiture products might be broken
10 into a million different places I think the Court will
11 acknowledge it would be very hard for a small publisher to give
12 the kind of assurance to the state of California that we can
13 give, and that's what we're driving at here. So if weeks go by
14 and we can't close on these employees, then the value of the
15 assets change, the competitive process changes, things like
16 that.
17 Similarly, and trying to be completely candid here,
18 Mr. Collins didn't quite articulate it this way, but
19 West-Thomson has no real economic incentive since the deal has
20 closed, to divest these properties early. Through no fault of
21 theirs, properties without an owner deteriorate in value.
22 Now, if these properties are to be properly supported,
23 we need to move in and we need to move in rapidly and so I would
24 ask Your Honor to do whatever is necessary to adjudicate the
25 matter as quickly as possible.
48
1 Are there any further questions that Your Honor has of
2 me? Because I don't -- I really don't want to leave with the
3 Court thinking that we're trying to put one over or hide one or
4 that we're not going to continue to compete as vigorously as
5 we've done in the past, because that is the intention of our
6 company. And that's the intention of this deal. It was a hard
7 fought deal and it was the result of lawsuits and participation
8 in this case and a whole bunch of other things.
9 THE COURT: Well, as I say, I received a two-page
10 document and it didn't give me very much information and maybe I
11 was the only one that wasn't operating on what Mr. Collins said
12 was the assumption all along that all of the products would
13 likely be divested to one acquirer. Maybe I missed that
14 somewhere along the way. So when I saw a two-page document
15 saying, well, Lexis-Nexis now has everything that Thomson used
16 to have and Lexis-Nexis is no longer going to be raising the
17 banner which -- and I may have ruled against you but you were
18 there raising the banner for what you thought was the public
19 interest and the issues that were important to you along with
20 Hyperlaw and CD and Geronimo and one or two others, Tax
21 Analysts, and I mean I think that -- I obviously feel that my
22 opinion is right and that it's consistent with what the Tunney
23 Act requires of the Court and you would have me go further and
24 that it's consistent with the Microsoft opinion but I also think
25 it's important for someone to be doing what you did in Microsoft
49
1 in the Court of Appeals which is to try to persuade the Court of
2 Appeals that maybe there are some points that the Justice
3 Department wasn't aggressive enough on or the Court wasn't
4 aggressive enough on.
5 It's never a good thing -- I won't say it's never a
6 good thing, to encourage settlement, and that's what this is all
7 about but in a case that's complicated and where the public
8 interest is at issue as well as the interests of a lot of major
9 companies but also major service providers to several
10 professions and segments of the commercial public, that if there
11 are errors made by a trial judge it's important that somebody be
12 there to try to point them out to the Court of Appeals.
13 So when I got a two-page document that said, you know,
14 everybody that has been fighting with each other is now quite
15 happy with each other, it was -- raised my level of concern in
16 particular because it didn't tell me very much about the
17 details.
18 MR. REBACK: Well, I recognize that. I will say that
19 in my view this settlement is far more strongly in the public
20 interest, this is my own view and the view of Lexis-Nexis, than
21 what was contemplated in the proposed final judgment and having,
22 as Your Honor characterized it, championed that position, on
23 this point I continue to assert it.
24 Now, if there's some way we can give Your Honor
25 assurance to that effect I think it's certainly appropriate for
50
1 the Court to ask those questions but, you know, we operate in
2 the context of the Court's opinion, the Court of Appeals'
3 opinion in Microsoft and what we can do within that context and
4 I believe what we've done is strongly in the public interest.
5 THE COURT: You notice I even took your suggestion and
6 quoted your suggestion from Microsoft. I hesitated.
7 MR. REBACK: Yes, Your Honor.
8 THE COURT: Mr. Foster, anything you want to add?
9 MR. FOSTER: Thank you.
10 First I'd like to make one small remark about the idea
11 that the divestitures are going to one company. I think you
12 should know that the plaintiffs from the outset had envisioned
13 in fact that the breakup on the divestiture products may have
14 had some anticompetitive or would have made those products less
15 competitive than had they been in the hands of one buyer.
16 Some of those products in the divestiture are very
17 strong products and some are not so strong and one of our ideas
18 was that it would be pro-competitive to put them in the hands of
19 a strong legal publisher to counter balance Thomson-West.
20 Before the merger those divestiture products are in the hands of
21 a very large company and after, if things go according to the
22 plan between Thomson and Lexis, they will still be in the hands
23 of one company.
24 As far as our investigation of Lexis as a buyer, we
25 have begun investigating them. We have received some comments.
51
1 We're going to pursue more input.
2 THE COURT: How do you get comments in a case like
3 this? Does everybody out there know this is happening?
4 MR. FOSTER: They certainly do. All these people have
5 to do is to hook into Hyperlaw's web page.
6 Concerning the motions of Hyperlaw, we're glad to
7 answer that in writing. We're always glad to listen to
8 Hyperlaw's comments and we'll answer them again and again if we
9 need to.
10 One thing I need to say about the Court of Appeals
11 process. The plaintiffs don't think that the divestiture
12 products can stand waiting until the end of the Court of Appeals
13 process. That could take up to a year or more. That would
14 really hurt the divestiture products.
15 THE COURT: Assuming that no Court enters a stay of
16 anything pending appeal, isn't that argument made in lots of
17 business litigation and lots of merger cases? I mean there are
18 impacts on businesses who litigate in trial courts and win or
19 lose in trial courts and there's always the possibility of an
20 appeal. I mean is the argument that in a merger case, that
21 different standards ought to apply to intervention than in other
22 kinds of cases? There were a number of intervenors in Microsoft
23 and the Court of Appeals struck me that they were -- that they
24 and ultimately the Justice Department was well served by having
25 all the arguments ventilated and decided by a Court of Appeals,
52
1 whereas if there had been no appellant that case never would
2 have been decided.
3 MR. FOSTER: That's true, Your Honor, but if you
4 recall, that particular case wasn't a merger. It was for
5 enjoining future conduct.
6 THE COURT: Right.
7 MR. FOSTER: I just have one more point that
8 addresses --
9 THE COURT: You're going to make that point I suppose
10 when you oppose Hyperlaw, if you oppose Hyperlaw's motion.
11 MR. FOSTER: That's right. I just have one more point
12 about something that was brought up by Thomson and Lexis. You
13 should know that it's always been the plaintiff's intention not
14 to approve a buyer for the divestiture products until there's a
15 final judgment entered in the case. The reason for that is --
16 THE COURT: What do you mean by a final judgment?
17 MR. FOSTER: Entering the final judgment in this case.
18 THE COURT: In this Court.
19 MR. FOSTER: Right. The reason for that is that the
20 relief is an entire package. There are a lot more things in the
21 consent degree than just the divestitures. We're not willing to
22 risk losing the other parts of the relief.
23 THE COURT: So you don't like Mr. Collins' bifurcation
24 idea.
25 MR. FOSTER: Certainly not. If you'd like, I can go
53
1 through those things.
2 The option to reopen the bidding for the Official
3 Reporter contracts. There's more than an entire page of
4 obligations put on Thomson to maintain the assets on those
5 Official Reporters, to maintain the employees associated with
6 that, to cooperate in the transfer of those official contracts
7 when a new Official Reporter is picked, and there's an all
8 important transfer of the intellectual property in the past
9 volumes. There's a continuing compliance mechanism in the
10 consent decrees we don't want to lose and we don't want to lose
11 judicial enforcement of the decree.
12 THE COURT: Is it your intention to file a document
13 shortly in response to the February 4th filing of Mr. Collins?
14 Because I now have Thomson and West's motion to amend the
15 proposed final judgment and to enter. Is it your intention and
16 the State plaintiffs' intention to file something that says we
17 agree this should be entered? We don't oppose the proposed
18 changes on star pagination and we affirmatively propose and
19 agree with everything else? Is that what you intend to do?
20 MR. FOSTER: I'm not sure that we'll do it exactly the
21 way that you phrased it there. We're certainly saying we do not
22 object.
23 THE COURT: You've got to say more than that. If you
24 want to say that on star pagination, however you want to say it,
25 say it. I come back to where I started. You all told me that I
54
1 shouldn't worry about the divestiture issue since I've already
2 ruled on the divestiture issues and the Justice Department and
3 the States are doing what they are supposed to do under the
4 consent decree but in terms of the level of comforts, you ought
5 to be saying to a Court in a Tunney Act proceeding we've
6 investigated this case, we've looked at the competitive impact,
7 we've done everything we're supposed to do and we've also
8 continued, as you suggested earlier, to monitor developments
9 even as they changed. I can't remember your exact language but
10 basically you said we don't think they're strictly substantial
11 changes. They're not anticompetitive changes. We continue to
12 believe that this consent decree is in the public interest.
13 We want -- we think you should enter the final
14 judgment. I mean you may have a caveat with respect to star
15 pagination but it seems to me that the way the Tunney Act is
16 supposed to work it's your settlement, it's your consent decree,
17 and to the extent that a Court is supposed to be somewhat
18 deferential and not overly active, it is in part, perhaps in
19 large part under Microsoft and the Tunney Act because it's
20 deferring to the prosecutorial judgment of the Justice
21 Department and because it's been given a level of comfort from
22 the Justice Department that the investigation has been thorough
23 and that the concerns that the Justice Department raised in the
24 initial complaint have been largely matters that have passed and
25 I think before I enter what is now only defendants' motion to
55
1 enter a final judgment, you've got to say something along those
2 lines.
3 Maybe you will say, well, we already said that except
4 for star pagination but things have changed, whether as Mr.
5 Collins says they're not terribly substantial, or as Mr. Reback
6 says they're even more in the public interest than they were
7 before, I think a judge has a right to know what the
8 prosecutor's views of that is before I grant what is now the
9 motion of one party, the defendants, the people who were sued,
10 to enter a final judgment, and you don't have to respond now but
11 I suspect you'll agree when you think about it.
12 MR. FOSTER: I'd be glad to file something unless
13 directed otherwise by my superiors.
14 THE COURT: I think you have to file something because
15 one party has filed a motion. It's a question of what you say
16 and whether you deal with the comments that I've made to them, I
17 will call them comments rather than concerns.
18 Anything else, Mr. Foster?
19 MR. FOSTER: There's nothing else except to add that
20 the States have a very serious concern about not breaking up the
21 package and if you'd like to hear from them they'd be glad to
22 talk about it.
23 THE COURT: Hold on one second.
24 Yes, sir.
25 MR. IOANNOU: As Mr. Foster has already stated, the
56
1 final judgment provides significant prognosticative benefits,
2 separate but intertwined divestitures. The benefit the States
3 would like to highlight at this point is provided for in section
4 11 of the final judgment. Pursuant to section 11 after entry of
5 the final judgment the States of California, Washington and
6 Wisconsin have the option to terminate their contracts with
7 respect to the official -- to their Official State Case Law
8 Reporters with Thomson. If the option is exercised, among other
9 things Thomson must provide a substitute publisher with a myriad
10 of assets used in production of that respective Official
11 Reporter.
12 In addition, Thomson must disclose which personnel are
13 involved in the editorial process and not enter any negotiations
14 with the substitute publisher and the employees.
15 Another thing that's very important that Mr. Foster
16 has already mentioned is that Thomson must transfer a perpetual
17 in term license of all its intellectual property rights to the
18 substitute publisher with respect to the Reporter at issue.
19 A specific detriment that the States have concerns
20 Deerings, California, Code Annotated and the California Official
21 Reporter. Now, these two products are heavily tied to each
22 other and when we reached the decree it was envisioned that the
23 purchasers of Deerings would be best qualified to bid for the
24 California Official Reporter without the option provided for in
25 the final judgment. In other words, if the divestiture is
57
1 allowed to go forward before the decree is entered, those
2 products will be split and will seriously be damaged
3 competitively and also their viability as individuals will be
4 threatened.
5 For those reasons and those given by Mr. Foster the
6 plaintiff States will not approve any buyer until the final
7 judgment is entered.
8 THE COURT: Thank you.
9 Mr. Collins, did you want to add anything?
10 MR. COLLINS: Very quickly, Your Honor. I know we've
11 taken a lot of your time.
12 Just on this bifurcation point. One, as far as the
13 States are concerned, particularly California is concerned on
14 the Deerings issue, I have no doubt that we can work something
15 out there as far as a support agreement or whatever, at least
16 for the interim time and if there was an approval and we'd be
17 happy to take that up with the States to make sure that we can
18 arrange something satisfactory to them.
19 I think as far as generally the bifurcation issue is
20 concerned as was brought out by Mr. Foster's comment that the
21 Justice Department was against it, we're probably using it and I
22 started it using the term bifurcation loosely. I don't have in
23 mind that we will bifurcate anything in the decree. The decree
24 will continue to go forward. The June 19th stipulated order
25 will continue to go forward with all the obligations in it,
58
1 whether or not we have closed on the sales of Lexis-Nexis. If
2 there's an appeal everything that could possibly be subject to
3 an appeal could go up at that time. The only thing that will
4 have happened is there would have been a closure on the sale of
5 Lexis-Nexis. Maybe we're undermining the appeal process some
6 way if we allow the transaction to close before an appeal has
7 been decided. That could be one possible concern, but think
8 about what's going to be appealed here.
9 As far as the divestiture is concerned, there are
10 really only two things to appeal. One is the decree that
11 requires us to divest too little or the decree that requires us
12 to divest too much. No one is arguing that it requires us to
13 divest too much. The people who could argue that with West and
14 Thomson and we're not arguing that.
15 If the argument is that we've divested too little,
16 then we certainly would have to divest whatever it is that's on
17 the table right now plus something more if that appeal is
18 successful.
19 So if we go forward today and divest with the
20 plaintiff's approval, having solved the State of California's
21 concern, and there's a successful appeal on that issue, then
22 we'll just have to divest some more.
23 But in any event, either we will divest voluntarily or
24 we'll have to divest by Court Order. The things that are on the
25 table could be divested to Lexis-Nexis.
59
1 So I don't see how the appellate process should be
2 undermined at all by this, shouldn't jeopardize anybody's
3 rights, any third party's rights or anyone who decides they
4 should be an intervenor in this case to come in if you allow the
5 closing to go forward, and all of that is really separate and
6 apart from the entry of the decree, given the June 19 stipulated
7 order and the appeal process.
8 THE COURT: And the issues at least at this point that
9 Hyperlaw is interested in are basically procedural issues
10 although they're important ones. You haven't seen the papers.
11 The issues that they listed were whether or not I was wrong in
12 concluding that there was adequate notice under the Tunney Act,
13 public comment and so forth, and whether I was wrong in
14 determining that there was sufficient disclosure of documents
15 like I dealt with and I think I dealt with in a footnote about
16 disclosure of document, central to the consideration of merits
17 pursuant to the Tunney Act. That's the kind of thing if I'm
18 wrong on that everybody would be back to square one and people
19 would have a different understanding for future Tunney cases,
20 but you all would have to determine whether it is significant
21 enough risk to give you -- that the Court of Appeals would agree
22 with those arguments, to give you serious pause.
23 MR. COLLINS: Your Honor, if I may, think about what
24 could happen in the Court of Appeals. They could reject those
25 arguments and the intervening status and the case go forward on
60
1 that basis, in which case nothing has changed, or they could
2 accept them. What acceptance means is that the order that was
3 entered, Hyperlaw has appealed, was improperly entered. So
4 we're back to the situation where now we don't have an order.
5 Okay. At all. If we don't have an order, then West and Thomson
6 should be free to divest whatever they want to, to anybody they
7 want to and we happen to choose under our contract to divest it
8 to Lexis-Nexis. So, really it doesn't do anything. Whether
9 Hyperlaw would win or lose on the appeal we can still divest to
10 Lexis-Nexis.
11 I mean in any case that's one of the key points that
12 seems to be missed I think a little bit in the proceeding and
13 that this is a proceeding about the entry of an order to compel
14 Thomson and West to divest and do some other things, but to
15 divest things. It is not the entry of an order that would
16 restrain Thomson and West from divesting.
17 The order will be entered and it will be compelled to
18 divest or it won't be entered, in which case it will be free to
19 divest but not compelled.
20 We would like to get the divestitures ordered for the
21 reason I've suggested and what Mr. Reback has suggested, that he
22 would like to see it take place as soon as possible.
23 We urge the Court to give very serious consideration
24 in telling the plaintiffs that you have no objection to the
25 plaintiff going forward with its approval process and revealing
61
1 the result of that investigation when they finish.
2 Thank you very much, Your Honor.
3 THE COURT: Thank you.
4 Thank you all, and again I'm sorry to have kept you
5 waiting before we started this hearing.
6 Thank you.
7 (Proceedings concluded at 4:15 p.m.)
8 CERTIFICATE OF OFFICIAL REPORTER
9 It is certified by the undersigned Official Court Reporter
10 of the United States District Court for the District of Columbia
11 that the foregoing is the official record of the proceedings
12 indicated.
13 ____________________
14 SANTA THERESA ZIZZO
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